SIT report on Black Money: 6 things you should know about it

SIT report on Black Money: 6 things you should know about it

The Special Investigation Team (SIT), headed by Justice MB Shah (retired), submitted its fifth report to Supreme Court on methods to curb black money in the economy.

The SIT has made the following recommendations in the Fifth Report

1 
Complete ban should be imposed on cash transactions above Rs 3,00,000. There should be specific provision in the Act that transactions in cash above threshold limit shall be deemed as illegal, invalid and punishable under the law.
2
If there is cash withdrawal of more than Rs.3,00,000 from any bank, then bank should consider it as a suspicious activity and should report it to Financial Intelligence Unit ('FIU')and the concerned Income–tax Department.
3
Maximum limit on cash holdings may be fixed between Rs.10 to 15 lacs. In any case, if any person or industry requires to hold more cash, it may obtain necessary permission from the Commissioner of Income–tax of the area.
4
In addition, starting from the next year, all banks including co–operative banks be directed to notify any income or withdrawals of more than Rs.3,00,000 to the Directorate General of Income-tax (Investigation) Authorities of the State and to the FIU.
5
Appropriate steps may be taken for amending the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, by incorporating the provision that undisclosed foreign income and assets would vest in the Union of India. Once it is held that under the law, property vests in Union of India, the person who is holding the said property outside the country shall have to prove that it was acquired legally and/or held after obtaining necessary permission from the RBI.
6
Before investing any amount or purchasing any property outside the country, the assessee must inform the concerned jurisdictional Commissioner of Income Tax Department of the State.

Feasibility of having a new financial year

Government of India
Ministry of Finance

*Government today constituted a Committee headed by Dr. Shankar Acharya (former Chief Economic Adviser) to examine the desirability and feasibility of having ‘a new financial year’*; The Committee to submit its Report by 31st December, 2016. 

                    The Government of India today constituted a Committee to examine the desirability and feasibility of having ‘a new financial year’. The Committee headed by Dr. Shankar Acharya (former Chief Economic Adviser) has Shri K.M. Chandrasekhar (former Cabinet Secretary), Shri P.V. Rajaraman (former Finance Secretary, Tamil Nadu) and Dr. Rajiv Kumar (Senior Fellow, Centre for Policy Research) as other Members. The Committee will examine the merits and demerits of various dates for the commencement of the financial year including the existing date (April to March), taking into account the various relevant factors.

                                        The details on the Composition and the Terms of Reference of the Committee are uploaded on the website of Ministry of Finance (www.finmin.nic.in). The Committee has been given time till 31st December, 2016 to submit its Report.

PPF Account Premature Closure : Latest Rules & Eligibility Amount Calculation

June 22, 2016 | by Sreekanth Reddy

Public Provident Fund (PPF) is one of the best Debt oriented Saving options that are available in India. It is also one of the most tax-efficient financial instruments.

PPF Account has a lock-in period of 15 years.  A Public Provident Fund (PPF) account gets matured after the completion of 15 years only.

There are certain options for an account holder to make partial withdrawals from PPF. But, a PPF account can be closed prematurely only in the event of the death of the Account holder.

The government has recently issued a notification announcing the latest PPF Account premature closure norms or rules. You can now close your PPF account before the maturity date.

When can I close my PPF Account prematurely?

As per the latest rules, a subscriber of PPF Account shall be allowed premature closure of his/her account (or) account of a minor of whom he/she is the guardian on the below mentioned reasons;

*.A PPF Account can be closed in the event of the death of the Account holder.

*.PPF Account Premature Closure is accepted when the amount is required for the treatment of serious ailments (or) life threatening diseases of the Account holder (self), Spouse, dependent children or parents of the Account holder.

*.PPF Account Premature Closure is also allowed when the amount is required for highereducation of the Account Holder(subscriber/self)or minor account holder.

*.Kindly note that you can close PPF account prematurely only if your account has completed FIVE Financial Years.(This rule is not applicable in case of‘death’ of the account holder.)

*.If the reason for Premature closure of PPF account is ‘medical treatment’, you have to produce supporting documents from competent medical authority.

*.If the reason for premature closure of PPF a/c is ‘higher education’, you have to produce fee bills and documents confirming admission in a recognized institute of higher education in India or abroad(foreign country).

*.Another important point is,a penalty of 1%is deducted from the applicable interest rates on the deposits held in the PPF account. This is applicable on the deposits from the date of opening of the PPF account till the date of premature closure of PPF account.

CBDT abolishes tax on start ups issuing shares above market value

Cheering news for start ups – 
CBDT abolishes tax on start ups issuing shares above market value  
 Closely held companies used to issues shares at substantial premium to convert black money into white money without providing any valuation justifying the premium. Thus, the Finance Act, 2012 inserted Section 56(2)(viib) to impose tax on closely held companies receiving consideration for shares in excess of fair market value.   Valuations of start ups have fallen sharply, recently, on worries over profitability, growth and intense competition. The Income-Tax Dept. discussed a controversial move to impose tax on those startups under the garb of Section 56(2)(viib) on the ground that their last round of valuation was lower than the first round. This move was likely to upset startups who were already worried over funding issue and falling valuations. Thus, there had been a long standing demand of the industry that the Govt. should either do away such tax on startups or provide a threshold exemption limit.   Now the CBDT has abolished such tax on start ups. Any consideration received by start ups from resident persons in excess of fair value of shares shall not be charged to tax as income from other sources under Section 56(2)(viib).   Editor's Note : However, this benefit is not available for all startups. Tax exemption is available for only those startups which fulfill the conditions specified in notification of Govt. of India, dated 17-02-2016.

Radical changes in FDI policy regime

Major impetus to job creation and infrastructure: Radical changes in FDI policy regime; Most sectors on automatic route for FDI

The Union Government has radically liberalized the FDI regime today, with the objective of providing major impetus to employment and job creation in India. The decision was taken at a high-level meeting chaired by Prime Minister Narendra Modi today. This is the second major reform after the last radical changes announced in November 2015.  Now most of the sectors would be under automatic approval route, except a small negative list. With these changes, India is now the most open economy in the world for FDI.

In last two years, Government has brought major FDI policy reforms in a number of sectors viz. Defence, Construction Development, Insurance, Pension Sector, Broadcasting Sector, Tea, Coffee, Rubber, Cardamom, Palm Oil Tree and Olive Oil Tree Plantations, Single Brand Retail Trading, Manufacturing Sector, Limited Liability Partnerships, Civil Aviation, Credit Information Companies, Satellites- establishment/operation and Asset Reconstruction Companies. Measures undertaken by the Government have resulted in increased FDI inflows at US$ 55.46 billion in financial year 2015-16, as against US$ 36.04 billion during the financial year 2013-14. This is the highest ever FDI inflow for a particular financial year. However, it is felt that the country has potential to attract far more foreign investment which can be achieved by further liberalizing and simplifying the FDI regime.  India today has been rated as Number 1 FDI Investment Destination by several International Agencies. 

Accordingly the Government has decided to introduce a number of amendments in the FDI Policy. Changes introduced in the FDI policy include increase in sectoral caps, bringing more activities under automatic route and easing of conditionalities for foreign investment. These amendments seek to further simplify the regulations governing FDI in the country and make India an attractive destination for foreign investors.  Details of these changes are given in the following paragraphs:

1. Radical Changes for promoting Food Products manufactured/produced in India

It has now been decided to permit 100% FDI under government approval route for trading, including through e-commerce, in respect of food products manufactured or produced in India.

2. Foreign Investment in Defence Sector up to 100%

Present FDI regime permits 49% FDI participation in the equity of a company under automatic route.  FDI above 49% is permitted through Government approval on case to case basis, wherever it is likely to result in access to modern and 'state-of-art' technology in the country. In this regard, the following changes have inter-alia been brought in the FDI policy on this sector:

i) Foreign investment beyond 49% has now been permitted through government approval route, in cases resulting in access to modern technology in the country or for other reasons to be recorded.  The condition of access to 'state-of-art' technology in the country has been done away with.

ii) FDI limit for defence sector has also been made applicable to Manufacturing of Small Arms and Ammunitions covered under Arms Act 1959.

3. Review of Entry Routes in Broadcasting Carriage Services

FDI policy on Broadcasting carriage services has also been amended. New sectoral caps and entry routes are as under:

Sector/Activity	New Cap and Route
5.2.7.1.1 (1)Teleports(setting up of up-linking HUBs/Teleports); (2)Direct to Home (DTH); (3)Cable Networks (Multi System operators (MSOs) operating at National or State or District level and undertaking upgradation of networks towards digitalization and addressability); (4)Mobile TV; (5)Headend-in-the Sky Broadcasting Service(HITS) 5.2.7.1.2 Cable Networks (Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs))	100%  Automatic
Infusion of fresh foreign investment, beyond 49% in a company not seeking license/permission from sectoral Ministry, resulting in change in the ownership pattern or transfer of stake by existing investor to new foreign investor, will require FIPB approval

4. Pharmaceutical

The extant FDI policy on pharmaceutical sector provides for 100% FDI under automatic route in greenfield pharma and FDI up to 100% under government approval in brownfield pharma. With the objective of promoting the development of this sector, it has been decided to permit up to 74% FDI under automatic route in brownfield pharmaceuticals and government approval route beyond 74% will continue.  

5. Civil Aviation Sector

(i)  The extant FDI policy on Airports permits 100% FDI under automatic route in Greenfield Projects and 74% FDI in Brownfield Projects under automatic route. FDI beyond 74% for Brownfield Projects is under government route.

(ii)   With a view to aid in modernization of the existing airports to establish a high standard and help ease the pressure on the existing airports, it has been decided to permit 100% FDI under automatic route in Brownfield Airport projects.

(iii) As per the present FDI policy, foreign investment up to 49% is allowed under automatic route in Scheduled Air Transport Service/ Domestic Scheduled Passenger Airline and regional Air Transport Service. It has now been decided to raise this limit to 100%, with FDI up to 49% permitted under automatic route and FDI beyond 49% through Government approval. For NRIs, 100% FDI will continue to be allowed under automatic route. However, foreign airlines would continue to be allowed to invest in capital of Indian companies operating scheduled and  non-scheduled air-transport services up to the limit of 49% of their paid up capital and subject to the laid down conditions in the existing policy.

6. Private Security Agencies

The extant policy permits 49% FDI under government approval route in Private Security Agencies. FDI up to 49% is now permitted under automatic route in this sector and FDI beyond 49% and up to 74% would be permitted with government approval route.

7. Establishment of branch office, liaison office or project office

For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted.

8. Animal Husbandry

As per FDI Policy 2016, FDI in Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture and Apiculture is allowed 100% under Automatic Route under controlled conditions. It has been decided to do away with this requirement of 'controlled conditions' for FDI in these activities.

9. Single Brand Retail Trading

It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having 'state-of-art' and 'cutting edge' technology.

Today's amendments to the FDI Policy are meant to liberalise and simplify the FDI policy so as to provide ease of doing business in the country leading to larger FDI inflows contributing to growth of investment, incomes and employment. PIB

FATCA-USA

Press Information Bureau
Government of India
Ministry of Finance
09-July-2015 16:55 IST

India and United States Signs Inter Governmental Agreement (IGA) to Implement the Foreign Account Tax Compliance Act (FATCA) to Promote Transparency on Tax Matters

Mr. Shaktikanta Das, Revenue Secretary of India and Mr. Richard Verma, U.S. Ambassador to India signed here today , an Inter Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency between the two nations on tax matters. The agreement underscores growing international co-operation to end tax evasion everywhere. The text of the signed agreement will be available on the website of the Indian Income Tax Department (www.incometaxindia.gov.in) and the website of U.S. Treasury (www.treasury.gov).

 

The United States (U.S.) and India have a long standing and close relationship. This friendship extends to mutual assistance in tax matters and includes a desire to improve international tax compliance. The signing of IGA is a re-affirmation of the shared commitment of India and USA towards tax transparency and the fight against offshore tax evasion and avoidance. 

 

Revenue Secretary, Shaktikanta Das stated, "Signing the IGA with U.S. to implement FATCA today, is a very important step for the Government of India, to tackle offshore tax evasion. It reaffirms the Government of India's commitment to fight the menace of black money. It is hoped that the exchange of information on automatic basis, regarding offshore accounts under FATCA would deter tax offenders, would enhance tax transparency and eventually bring in higher equity in to the direct tax regime which necessary for a healthy economy."

 

Ambassador Verma, who signed on behalf of the United States, stated, "The signing of this agreement is an important step forward in the collaboration between the United States and India to combat tax evasion. FATCA is an important part of the U.S. Government's effort to address that issue."

 

FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. To date, the United States has IGAs with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions.

 

The United States enacted FATCA in 2010 to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on U.S. account holders.  As per the IGA, FFIs in India will be required to report tax information about U.S. account holders directly to the Indian Government which will, in turn, relay that information to the IRS.  The IRS will provide similar information about Indian account holders in the United States. This automatic exchange of information is scheduled to begin on 30^th September, 2015.

 

Both the signing of the IGA with U.S. as well as India's decision to join the Multilateral Competent Authority Agreement (MCAA) on 3^rd June, 2015 are two important milestones in India's fight against the menace of black money as it would enable the Indian tax authorities to receive financial account information of Indians from foreign countries on an automatic basis. 

 

 

*****

 

MAM/

Black Money Bill: All You Need to Know

Black Money Bill: All You Need to Know

The black money Bill was passed by the Lok Sabha on Monday. Christened the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015, it seeks to check the black money menace with stringent provisions for those stashing illegal wealth abroad. The Bill provides for separate taxation of any undisclosed income in relation to foreign income and assets. Such income will henceforth not be taxed under the Income-tax Act but under the stringent provisions of the new legislation.
Here's your 10-point cheat-sheet to the story:

1. According to the Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, 2015, those who conceal income and assets and indulge in tax evasion in relation to foreign assets can face rigorous imprisonment of up to 10 years.

2. The offence will be non-compoundable and the offenders will not be permitted to approach the Settlement Commission for resolution of disputes.

3. There will also be a penalty of 300 per cent of taxes on the concealed income and assets.

4. According to the Bill, undisclosed foreign income or assets shall be taxed at the flat rate of 30 per cent. No exemption or deduction or set off of any carried forward losses which may be admissible under the existing Income-tax Act, 1961, shall be allowed. And concealment of income in relation to a foreign asset will attract penalty equal to three times the amount of tax (90 per cent of the undisclosed income or the value of the undisclosed asset). This would be over and above tax at a flat rate of 30 per cent.

5. The Bill also proposes to make concealment of income and evasion of tax in relation to a foreign asset a 'predicate offence' under the Prevention of Money Laundering Act, which will enable the enforcement agencies to attach and confiscate the accounted assets held abroad and launch proceedings.

6. It seeks to make non-filing of income tax returns or filing of returns with inadequate disclosure of foreign assets liable for prosecution with punishment of rigorous imprisonment of up to 7 years. To protect persons holding foreign accounts with minor balances which may not have been reported out of oversight or ignorance, it has been provided that failure to report bank accounts with a maximum balance of upto Rs.5 lakh at any time during the year will not entail penalty or prosecution.

7. The tax liability on an overseas property would be computed on the basis of its current market price, not the price at which it was acquired.

8. The Bill provides for a short window for those holding overseas assets to declare their wealth, pay taxes and penalties to escape punitive action. Failure to furnish return in respect of foreign income or assets shall attract a penalty of Rs.10 lakh. The same amount of penalty is prescribed for cases where although the assessee has filed a return of income, but he has not disclosed the foreign income and asset or has furnished inaccurate particulars of the same.

9. The Income Tax assesses with overseas assets will get a one-time opportunity for declaring them. The time-frame of the short window will be notified after the passage of the bill.

10. The proposal to come out with a new law on black money was announced by Finance Minister Arun Jaitley in his first full-year Budget in February

Presentation on Anti Black Money Bill,2015

The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, popularly called as Anti-black money bill, was introduced in the Lok Sabha on 20 March, 2015.The Bill provides for flat rate of tax at 30% on the value of undisclosed foreign income or assets along with a penalty of 300% on the amount of tax so computed. In addition the bill also provides for penalty of Rs. 10 lakh for non-disclosure of foreign asset or income in return or failure to furnish return under income-tax Act.

It further provides for prosecution of up to 10 years in case of wilful attempt to evade tax on foreign income or assets held outside India. Any person abettingor inducing another person to make and deliver false return, account, statement or declaration shall be prosecuted with rigorous imprisonment of 6 months to 7 years.

The Bill proposes for one-time opportunity to taxpayers to voluntarily disclose the undisclosed foreign income or assets. Any person who opts for this opportunity shall be liable to pay reduced penalty of 100% of tax and he would also get immunity from the prosecution.

Highlights of Interim Budget 2014

Excise Duty

• The Excise Duty on all goods falling under Chapter 84 & 85 of the Schedule to the Central Excise Tariff Act is reduced from 12 percent to 10 percent for the period upto 30.06.20 14. The rates can be reviewed at the time of regular Budget.
• To give relief to the Automobile Industry, which is registering unprecended negative growth, the excise duty is reduced for the period up to30.06.2014 as follows:

·         Small Cars, Motorcycle, Scooters  and Commercial Vehicles       -    from 12 % to 8%

·         SUVs -   from 30% to 24%

·         Large and Mid-segment Cars  – from 27/24% to 24/20%

• It is also proposed to make appropriate reductions in the excise duties on chassis and trailors – The rates can be reviewed at the time of regular Budget
• To encourage domestic production of mobile handsets, the excise duties for all categories of mobile handsets is restructured. The rates will be 6% with CENVAT credit or 1 percent without CENVAT credit.

Service Tax

• The loading and un-loading, packing, storage and warehousing of rice is exempted from Service Tax.
• The services provided by cord blood banks is exempted from Service Tax.

Custom Duty

• To encourage domestic production of soaps and oleo chemicals, the custom duty structure on non-edible grade industrial oils and its fractions, fatty acids and fatty alcohols is rationalized at 7.5 percent.
• To encourage domestic production of specified road construction machinery, the exemption from CVD on similar imported machinery is withdrawn.
• A concessional custom duty 5 percent on capital goods imported by the Bank Note Paper Mill India Private Limited is provided to encourage domestic production of security paper for printing currency notes.

Income Tax

No changes in Direct tax laws in interim budget

-CA. V.M.V.SUBBA RAO

Central govt DA

Dearness allowance (DA) enhanced for Central Government employees with effect from 01.01.2013 from 72% to 80%.[Notification No. 1(2)/2013-E-II(B) Date: 25.04.2013]

IndianCAs: UNION BUDGET 2013 [1 Attachment]

 

[Attachment(s) from Ashwin Nagar included below]

Union Bedget 2013.

| Ashwin Nagar | FCA and SAP-Finance & Consolidations |

Success is not permanent and failure is not final

 

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Attachment(s) from Ashwin Nagar

1 of 1 File(s)

unionbudget2013total.pdf

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GAAR-01-04-2016

Major Recommendations of Expert Committee on GAAR Accepted

The Central Government has carefully considered the report of the Expert Committee on General Anti Avoidance Rules (GAAR) and accepted the major recommendations of the Expert Committee with some modifications. This was announced by the Union Finance Minstar Shri P.Chidambaram here today in a press conference. The Finance Minister said that the following decisions have been taken by Government in this regard: (i)           An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement.  The current provision prescribing that it should be "the main purpose or one of the main purposes" will be amended accordingly. (ii)          The assessing officer will be required to issue a show cause notice,containing reasons, to theassessee before invoking the provisions of Chapter X-A. (iii)        The assessee shall have an opportunity to prove that the arrangement is not an impermissible avoidance arrangement. (iv)      The two separate definitions in the current provisions, namely, 'associated person' and 'connected person' will be combined and there will be only one inclusive provision defining a 'connected person'. (v)         The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices.  The current provision that the Approving Panel shall consist of not less than three members being Income-tax authorities or officers of the Indian Legal Service will be substituted. (vi)        The Approving Panel may have regard to the period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement. Such factors may be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. (vii)       The directions issued by the Approving Panel shall be binding on the assessee as well as the Income-tax authorities.  The current provision that it shall be binding only on the Income-tax authorities will be modified accordingly.  (viii)     While determining whether an arrangement is an impermissible avoidance arrangement, it will be ensured that the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years. (ix)        Investments made before August 30, 2010, the date of introduction of the Direct Taxes Code, Bill, 2010, will be grandfathered. (x)         GAAR will not apply to such FIIs that choose not to take any benefit under an agreement under section 90 or section 90A of the Income-tax Act, 1961. GAAR will also not apply to non-resident investors inFIIs. (xi)        A monetary threshold of Rs. 3 crore of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR.    (xii)       Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement. (xiii)     Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other. (xiv)     Statutory forms will be prescribed for the different authorities to exercise their powers under section 144BA. (xv)      Time limits will be provided for action by the various authorities under GAAR.  (xvi)     Section 245N(a)(iv) that provides for an advance ruling by the Authority for Advance Rulings (AAR) whether an arrangement is an impermissible avoidance arrangement will be retained and the administration of the AAR will be strengthened. (xvii)    The tax auditor will be required to report any tax avoidance arrangement.                                 Further, having considered all the circumstances and relevant factors, the Government has also decided that the provisions of Chapter X-A will come into force with effect from April 1, 2016 (as against the current provision of April 1, 2014).                     A number of countries have provided for General Anti Avoidance Rules (GAAR) in matters relating to taxation. While tax mitigationis recognized, tax avoidance is frowned upon.  International literature describes tax avoidance as the legal exploitation of tax laws to one's own advantage and an arrangement entered into solely or primarily for the purpose of obtaining a tax advantage.                                                  The principle of GAAR was incorporated in the Direct Taxes Code which was introduced as a Bill in Parliament on August 30, 2010.                        Pending consideration of the Bill, the Income-tax Act, 1961 was amended by Finance Bill, 2012 to add Chapter X-A titled 'General Anti- Avoidance Rule'. It became part of the law when the Finance Bill was passed by Parliament.  Draft GAAR guidelines were also published.  Under the current provisions, Chapter X-A would come into force with effect from April 1, 2014.               A number of representations were received against the provisions contained in Chapter X-A.  Hence, on July 13, 2012, the Prime Minister approved the constitution of an Expert Committee on GAAR to undertake stakeholder consultations and finalize the guidelines for GAAR.  Accordingly, an Expert Committee consisting of Dr.Parthasarathi Shome and three others was constituted on July 17, 2012 with broad terms of reference including consultation with stakeholders and finalizing the GAAR guidelines and a roadmap for implementation.                           The Expert Committee submitted its draft report on August 31, 2012 which was placed in the public domain on September 1, 2012.  After examining the responses to the draft, the Expert Committee submitted its final report on September 30, 2012.      The final report of the Expert Committee has been now put on the website of the Ministry of Finance i.e.finmin.nic.in.

FM on Life Insurance Business

Press Information Bureau
Government of India
Ministry of Finance

01-October-2012 17:45 IST

Statement of the Union Finance Shri P. Chidambaram on Issues Concerning the Life Insurance Industry

Following is the text of the Statement on issues concerning the life insurance industry made by the Union Finance Minister Shri P. Chidambaram while addressing the media persons here today:  

" On September 4, 2012, I met the CMDs/CEOs of insurance companies who are engaged in the life insurance business, including Life Insurance Corporation of India.  Chairman, IRDA was present at the meeting.

            A number of issues were raised by the life insurance industry.  After taking careful notes of the issues raised, I requested Chairman, IRDA to examine these issues and invited him to discuss them with me on a suitable date.  Accordingly, discussions were held on September 26 and 27, 2012.

            A  number of steps that would be necessary and desirable to give a fillip to the life insurance industry and expand the spread and penetration of life insurance were identified and agreed upon during the discussions.  I am happy to state that IRDA, as the Regulator, has agreed to examine the following steps and take appropriate action.

            Among the steps that were agreed upon are:

(i)           In a country with low spread and penetration of life insurance, the objective should be to sell simple and easily understood products.  At present, IRDA approves all insurance products on 'File & Use' basis. "Use & File" system may be introduced. IRDA, in consultation with insurers, will identify/design certain standard products which can be used by the industry under "use and file' system, if the insurance company complies with the conditions attached to the standard product. Such products will automatically be deemed to have been approved after 15 days of its intimation to IRDA unless IRDA finds non-compliance within the period of 15 days. IRDA shall take necessary action against the company in case any violations are noticed. IRDA shall expand such list of standard products on a continual basis.

(ii)          IRDA will lay down guidelines on the principles underlying the design of any insurance product.  Based on the recommendations of the Working Group that has been set up, IRDA will issue draft guidelines and, after consultations, final guidelines will be issued by the end of November, 2012.  Once the guidelines are in place, it would be possible to observe the 30-day norm mandated for clearance of products.

(iii)         IRDA will evolve and notify guidelines in order to reduce the arbitrage between "units" and "traditional products".

(iv)         IRDA will accept the KYC check done by the banks while a person opens an account.  Only additional information that is required for the purpose of insurance policy will be asked from the intended policy-holder. This will bring down the 'onboarding cost'.

(v)          At present, the policy on Bancassurance is "one bank one insurance company (one life and one non-life)".  In this arrangement, the Bank acts as the agent of the insurance company.  It is desirable that banks may act as "Brokers" where the fiduciary responsibility of the bank will be to the policy-holder.  IRDA will consider notifying banks as "Brokers" under Regulation 2(j)(v) of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002.  As insurance broker, the bank may sell the products of more than one insurance company.  This will provide the intended policy-holder a bouquet of products from which he/she may chose the appropriate product based on his/her needs and will also prevent mis-selling.

(vi)         All categories of Banking Correspondents may be allowed to sell micro insurance products.  This facility will apply only to micro insurance products and IRDA will make regulations for this purpose. This will ensure availability of micro insurance products in all parts of the country.

(vii)        At present, only the employer-employee groups are recognized for group business.  It is desirable that non-employer-employee groups, which are homogenous and have a commonality of interest, are permitted by IRDA to offer group savings products. These could include Self Help Groups, professional groups such as teachers in a school or nurses in a hospital, auto drivers' associations, domestic workers' associations etc.

(viii)      Under group business, the master policy-holder may be compensated for discharging the responsibilities cast upon him/her.  IRDA will issue guidelines in this regard shortly.

(ix)         Regarding management expenses, insurance companies are free to manage overall management expenses within the overall limits prescribed under sections 40B and 40C of the Insurance Act, without any granular stipulations, except the maximum commissions as prescribed by the Act.

(x)          An Insurance company may appoint a Mentor for 'mentoring' agents.  The functions performed by the Mentor will be distinct from the functions performed by the agents and the Mentor may be given a fixed fee (not commission) for mentoring agents.

(xi)         At present, investments are permitted in an infrastructure SPV floated by a Public Sector Enterprise (PSE) subject to the condition that the parent company (PSE) meets the rating criteria. In order to encourage investments in infrastructure, IRDA will allow investments in an infrastructure SPV floated by any company where the SPV is a wholly-owned subsidiary (WOS) of the parent company and the debt instrument issued by the SPV is guaranteed by the parent company, having due regard to rating criteria.

(xii)        At present, there is a stipulation that 75% of investments in debt, (excluding investments in Government Securities/Other Approved Securities) should be in AAA rated instruments.  IRDA will consider relaxing the stipulation and provide that the minimum requirement of 75 per cent in AAA instruments would apply to debt investments including Government Securities and Other Investments as provided in Sr No. (iii) of the table under Regulation 3(i) of the Insurance Regulatory and Development Authority (Investment) Regulations, 2000.  This is expected to release a space of about 12.5 per cent for investments in less than AAA rated debt instruments.

                 In addition to the above, discussions were held on matters relating to indirect taxes and direct taxes.  It was agreed that the following issues will be taken up with the CBDT and CBEC, as the case may be, and appropriate decisions arrived at:

              (a)          Reduction in service tax on first year regular premium as well as single premium policies.

              (b)          Treating annuity policy on par with subscriptions to the National Pension Scheme (NPS) and to be exempted from Rule 6(7A) of the Service Tax Rules.

               (c)          To examine whether the first year premium and subsequent premiums of social security insurance schemes such asJanashri Bima Yojana (JBY) and Aam Aadmi Bima Yojana (AABY), which are intended to benefit the weaker and vulnerable sections of the society, may be exempted from service tax. A similar exemption to be examined in the case of Micro Insurance policies.

              (d)          At present, service tax is levied on premium on accrual basis. The CBEC will be requested to examine whether service tax may be assessed on realization basis.

              (e)          Department of Revenue will examine whether, in addition to NPS, some insurance pension products as approved by IRDA may be included in the separate limit over and above the limit of Rs.1,00,000 under section 80C of the Income tax Act for the purpose of income tax deduction on the premium paid.

                (f)          CBDT will examine whether existing policies can be grandfathered whenever changes are made to direct tax laws, so that changes will apply only to policies issued prospectively.

              (g)          CBDT will examine whether contribution made to post retirement medical scheme offered by insurance companies may be included in Section 36(1)(iv) of the Income tax Act and the sum paid allowed as a deduction.

              (h)          At present, TDS applies on every payment of commission to an agent above Rs 20,000.  CBDT will examine whether the exemption can be shifted from every payment of commission to a cumulative commission payment exceeding, say, Rs.50,000 or any other suitable threshold in a year.

                                         I have asked Department of Revenue and the CBDT/CBEC to complete the examination of the above suggestions by October 10, 2012 so that appropriate decisions may be announced shortly thereafter.

                       The proposed amendments to the insurance laws were also discussed with IRDA.  Some of the issues raised by the insurance companies have already been addressed in the Insurance Laws (Amendment) Bill, 2008 that is pending before the Parliament.  In respect of some other issues, further amendments, if necessary, will be introduced as official amendments to the pending Amendment Bill.

                                    It is proposed to schedule, shortly, a similar meeting with the General Insurance sector to sort out issues in the non-life insurance sector.  Chairman, IRDA will be invited to attend the meeting."

***

DSM/RS/ka

FDI Article by S Gurumurthy

Reform' at nation's cost: S.Gurumurthy http://newindianexpress.com/opinion/article666721.ece By S Gurumurthy 20th September 2012 12:05 AM Indeed ironical. On the same Friday (September 14) Prime Minister Manmohan Singh rolled out the red carpet for Walmart, New York City, America's largest, shut Walmart out. Again ironically the very Friday the UPA government handed the FDI bouquet to Walmart and lobbyists assured that small retailers are safe, Atlanticcities, a web-newspaper from the stable of the famous Foreign Affairs magazine, carried a devastating headline news: 'Radiating Death: How Walmart Displaces Nearby Small Businesses'. Weeks ago, on June 30, over 10,000 people, shouting "Walmart = Poverty", marched through Los Angeles, America's richest city, against Walmart stores. On June 1, hundreds protested in Washington DC against Walmart. "Say-No-To-Walmart" is an ongoing movement all over the United States. Why focus on Walmart? It is world's most powerful retailer; it has 'spent' a lot to get the UPA nod for FDI in retail. Even as lobbyists here celebrate Walmart, it has become untouchable where it was born, in the US. Why is Walmart so hated in the US? "Walmart will devastate local businesses," say New York trade unions and local communities. The mass protesters at Los Angeles too cited the same reason: "small business will close down"; and screamed "Walmart has no heart and no morals. We don't want you in Los Angeles." Politicians in the US, however, seem to be like the UPA's cousins. In March last, the Los Angeles City Council had put a moratorium on big retailers, but, Walmart got building permits just a day before! Recall the 2G permit cut off date? Yet, the UPA certifies Walmart and its competitor cousins as compassionate to small retailers and farmers. It promises they will employ millions here. The evidence in the US is to the contrary. According to the Atlanticcities article, Walmart entered in Austin neighbourhood of Chicago in 2006. And by 2008, some 82 of the 306 small shops had closed down. The Economic Development Quarterly study found the closure rate around Walmart location at 35-60 per cent. Walmart radiated closure of 20 per cent of drug stores every mile from its stores; and 15 per cent home furnishing, 18 per cent hardware and 25 per cent toy stores. Studies in the US nail the UPA lie that FDI in retail will not hurt small shops. On job creation, a latest report (January 2010) titled 'Walmart's Economic Footprint' prepared for the New York City Public Advocate says that Walmart kills three local jobs for every two it creates. So the job creation argument too is a lie. The third justification that the 'farmers will get better prices' is a clever lie, and so needs a closer look. It suppresses the vital fact that Walmart does not buy, or pay, over the counter. It buys the nation's next harvest in futures market and fixes farm prices. It also imports cheap goods — from China — and destroy local production like it has done in the US. Take the first case, with the recent experience of the US and the world. Rice prices in the US and world markets shot up by three times in April 2008 as compared to January 2007. It was then that the US President George W Bush made the funny remark that prices had gone up because the newly prosperous Indians had begun eating more! What was the truth? The USA Today (April 23, 2008) and CNN (April 24, 2008) quoted the California Rice Commission and USA Rice Federation as denying shortage of rice and saying there was enough stock. Why then were prices rising? It was because, said the CNN, Sams Club (Walmart's wholesale division), holding huge stocks, was pushing up the prices. US farmers accused speculators and futures market for the high prices. It was not farmers who traded in farm futures. Investment funds accounted for 40 per cent of wheat futures trade in the US in January 2008, which rose to 60 per cent by April. Wheat futures that was $4 a bushel in early 2007, rose to $14 per bushel in April 2008. The US farmer, who had sold his harvest in futures market, lost and Walmart, which had bought the futures, gained. Even if some farmers had some stocks Walmart, which had stocked at cheaper prices, refused to buy at higher prices, pointed out the media. Look at it this way. If the US farmers get remunerative prices from Walmart why does the US, with two per cent farming population, grant annual farming subsidies of $20 billion and the European Union, for its five per cent farming population, gift a subsidy of $74.5 billion annually. The experience of the US and West nail all three justifications for the FDI in retail as lies. Foreign direct investment in retail will incrementally hit the 12 million family retailers in India; it will not help farmers; it will cut jobs. Even more dangerous, it will destroy the rural food security. Two of UPA government's reports — of the Planning Commission Working Group on Agriculture for the XI Plan (2007-2012), and the 19th report of the Standing Committee of Parliament on Food (2006-2007) to Parliament — themselves nail the lie that Walmart will link farm-gate to its gate and make Indian farmers rich. The reports describe the farm-gate thus: a total of 59 million of farming families (32 crore rural people) live on subsistence farms of five acres or less (while US farms are 250 times and the Australian, 4000 times, larger); about 60 per cent of food products is barter-exchanged and consumed by farmers and farm labour, and as seed and animal feeds within villages; only 40 per cent move out of villages for commercial marketing. Even if a small part of the large local needs is drawn by an efficient Walmart from the farm gate to its gate, that will mean urban pricing in rural areas that will destroy the food security of two-thirds of Indians in villages. The Montek Ahluwalia-led Planning Commission report laments that 'the marginal farmers are certainly going to stay for a long time' and 'what happens to them has implications for the entire economy." However, the small farmer is no waste. He is more efficient. His productivity a third higher, than in large farms. Small farmers use one-third of the total cultivated area and produce 41 per cent of nation's food and 110 million tonnes of milk. If large ones replace them, the nation's food production will fall by 7 per cent. The reformers do not know that recent global researches have confirmed that economy of scale that applies to industries does not apply to agriculture, where small ones are more efficient than large ones. QED: The 'reformers' betray illiteracy; clamour for fame as reformers; secure it at nation's cost. Reformers or deformers? S Gurumurthy is a well-known commentator on political and economic issues